This is a real life example (has to be anonymous) that shows how defining the core-purpose of your business enables you to define and understand the essence of the value proposition. First up is what the owner described as a manufacturer of coated parts, but what was the value proposition? You’ll need to remind yourself of what CATWOE is here, and my interpretation of what must comprise the value proposition.
1. Hermann Engineering Ltd
Herman Engineering Ltd (HEL) was founded in 1890 by two partners James James and Robert James. It started its long life near Cardiff in South Wales. It was set up originally to provide a service to the local steel industry, which started to go into heavy decline at the beginning of the 1970s. The company’s principal activity had always been the surface treatment of metal components. Surface treatment involved a variety of processes including, simple painting, carbiding and nitriding (carbon and nitrogen hardening), ‘nylon‘ coating (thick plastic resin coating), but it’s speciality was electroplating with nickel, chromium, and molybdenum.
Bryn Siencyn was the owner and managing director of the company. He had gradually repositioned his company, taking it away from the steel industry and bulk chemical deposition, nitriding and carbonising toward aerospace customers. Surviving the 1980s more or less intact, during the 90s Siencyn began to win more and more business with aerospace industries. The company’s traditional market had required a bucket chemistry approach to coating and electroplating, especially in the case of nitriding and carbonising. Now tied to aerospace, HEL’s market, although still predominantly local, extended throughout the U.K. Ninety per cent (90%) of the business was in aerospace, 50% of this was from one civil aircraft manufacturer. A slight shift was also evident toward both the electronics and automotive industries. The automobile industry was new for HEL, but was very demanding. HEL was pursuing opportunities in the civil market, especially telecommunications equipment, where components are coated to increase their longevity in harsh environments such as cold, tropical and hot dry climates, e.g. Saudi Arabia, and Indonesia.
HEL is a company based in S.Wales (E) owned by Mr S. It aims to provide an excellent service (W), at a profit (W), to manufacturers (C) requiring the application of performance enhancing surface coatings (T) to metallic substrates (the metal parts) used in high performance and high value machinery and systems (for example aircraft parts).
The core purpose is, therefore, not to make or manufacture, but to increase the performance of components through the application of a surface coating. But why this definition?
HEL’s business activities revolve around coating processes. The ‘internal transformation’ is one of turning an uncoated to a coated component. The purpose of the coating, however, is key to defining the business system. In this case, the coating’s purpose is to protect, to extend the life of, in essence to enhance the performance of, certain kinds of components. In this case, many of the components were high value aerospace parts. The purpose of HEL, then, is to enhance the performance of components that would become parts of high performance and very high value machines. This is the functionality HEL provides to its customers. Stating that the core-purpose is to increase the life and’/or performance of high value parts, narrows the customer base (to a more specialised segment) and focuses the business’s resources on customers prepared to pay for a premium service. Further innovation is encouraged by the new awareness of the function of the coating and the question arises of how else could HEL help its customers extend the life and enhance the performance of their components. For example, one of the ways was to provide a technical advisory service to assist customers design components with coating in mind (essentially an extension of the principle of design for manufacture). This service could then be extended to joint research projects that might lead to new coating compounds, new substrate materials, or a combination of both. Thus the selling of ABC’s knowledge and expertise becomes a new, but highly complementary, business. HEL changes from a reactive ‘manufacturer’ to a proactive high value adding service provider.